Preact recently released a report on Customer Success priorities. Their findings were based on responses from folks in the Customer Success field who worked primarily in medium-to-enterprise-sized B2B companies. I see SaaS companies with 50-100 employees as being in the sweet-spot for establishing a Customer Success team. Companies at this stage usually have enough ARR 0n the line to justify an investment in Customers Success, and are growing fast enough that it makes sense to establish a dedicated customer advocate. So with all that, let’s dive into some of the more interesting trends from this report.
Churn by customer is unsustainably high
About 55% [of respondents] said their logo churn currently exceeds 5% per year, and 13% reported it was more than 15%.
Although these churn rates are high, it’s hard to compare them to industry-wide standards without knowing the average contract size or ARR of the companies surveyed. These two factors have a big impact on SaaS churn: companies with smaller deal sizes usually see higher churn; companies making more than $10MM in ARR see an average churn rate 11.5% lower than those with <$10MM in ARR (source). What never varies is that churn is extremely expensive from a revenue and reputation perspective and Customer Success teams should be tracking churn by customer closely.
Net revenue growth is weak
Maintaining and increasing sales with customers under contract was even more of a challenge with only 30% of companies saying they’re growing revenue from their installed base. Results overall tended to be worse. Half the respondents said they were losing 10% or more in top line renewals annually.
Reducing net churn is hugely important, but so is expanding, or at least retaining, the revenue you capture from your existing customers. Negative churn rates (ie. making more from current customers) can mitigate the inevitability of at least a small amount of churn by volume. I discussed how to achieve negative churn rates in an earlier post.
So how are the 30% of companies surveyed growing revenue from their existing customer base? There are a few different axis you can experiment with when it comes to pricing out a SaaS product- below are a few options.
Product Features: Restrict certain features to higher priced plans
Number of seats: The more seats (users) a company has, the higher the cost
Higher Utilization: Explore what “utility” your company might be offering and aim to capture additional revenue as utilization increases. A good example of this model is Dropbox, which charges users based on how much storage space they need. Most customers start with a modest plan that meets their current needs. However, as they move more and more of their files onto Dropbox, they have to pay for increased storage space
Cross-Sell: Sell your current customers other services that are complementary to your core product offering
Companies can also incorporate two to three of these axes into “packages”, which is the tactic Slack is using. Another approach is to establish values for each of these axes in the initial contract and upsell based on changes. For instance, if a customer wants to add more users and increase their utilization, your company should consider re-negotiating the contract so that you’re able to capture more revenue.
Customer Success Managers are making it up as they go along
35% of customer success teams feel they’re firefighting vs. 9% feeling in control.
Yes, only 9% of Customer Success teams say they feel in control. This demonstrates that although more companies are investing in establishing a Customer Success team, these teams often leadership and a clear directive. I think a good first step is to identify which metrics are meaningful for the Customer Success team to track- such as churn by volume and net revenue, CLV (Customer Lifetime Value), and NPS (Net Promoter Score). Once the team has some quantitative and qualitative data (nothing can substitute actually talking to your customers), they should be able to identify a few easy changes or processes to put in place that will benefit their customers. From there the team should be able to iterate and uncover additional metrics to track.
Are there any key Customer Success priorities you feel were left out of this report?